Mark Latham Commodity Equity Intelligence Service

Monday 15th August 2016
Background Stories on www.commodityintelligence.com

News and Views:

Attached Files





    Macro

    Too Much Stuff: the heart of the matter.

    Image title

    "Every central bank in the world says they want inflation…they've come nowhere close...but that just means they are going to keep on trying; central banks cannot allow deflation because it increases the real value of debt… they are not going to rest until they get it," The James Rickards Project director told CNBC's "Squawk Box" on Monday.

    Value of negative-yielding bonds hits $13.4tn Financial Times - 2 days ago
    The value of negative-yielding bonds swelled to $13.4tn this week, as negative interest rates ...
    Back to Top

    China July power output up 7.2 pct at 550.6 bln kWh

    China July power output up 7.2 pct at 550.6 bln kWh

    China generated 550.6 billion kilowatt-hours (kWh) of power in July, up 7.2 percent from a year ago, government data showed on Friday.

    Output for the first seven months of the year rose 2 percent to 3.3121 trillion kWh, the National Bureau of Statistics said.

    http://www.reuters.com/article/china-economy-output-power-idUSENNG880SP
    Back to Top

    Distressed Assets Pile Up at Life Insurers, and More Are Coming


    North American life insurers have accidentally doubled their distressed-debt holdings in just six months. In the future, they are poised to build on that mound by design.

    Companies including Prudential Financial Inc. and MetLife Inc. held $1.32 billion of bonds that were in default, or close to it, at the end of the second quarter, their highest level since the middle of 2011, according to Bloomberg Intelligence data.

    They did not intend to buy distressed debt: In many cases they bought investment-grade bonds from energy drillers and retailers that ended up heading south. Insurance companies’ trouble with these bonds underscores how even conservative investors have been hurt by plunging oil prices.

    In the coming years, the companies are likely to buy more risky junk debt, said David Havens, a bond analyst covering insurers at brokerage Imperial Capital. For one thing, they need the income as central banks globally keep bond yields low, cratering investment returns for the industry. Also, proposed regulatory changes may make it cheaper for insurers to own the bonds, he said.

    "They don’t really have a lot of alternatives to buying this stuff in this environment," Havens said on the telephone in an interview. While insurers are unlikely to buy more distressed bonds, they will probably buy more junk-rated debt that is at least four steps below investment grade, he said. That debt is more likely to fall to distressed levels when the credit cycle changes for the worse.

    Energy bonds looked fairly safe to many insurers because oil and gas companies had high levels of assets relative to their debt, according to Mike Collins, a portfolio manager at Prudential’s fixed income unit, which oversees $652 billion for external investors. But as oil prices have plunged, so has the value of the assets, and the bonds have proven to be far riskier than they appeared, Collins said. He was speaking generally and not about Prudential in particular.

    “I don’t think anybody expected oil to fall as much as it did,” Collins said, referring to the price of a barrel of oil, which plunged from more than $100 in 2014 to less than $26 in February. “That caught a lot of people by surprise, and a lot of companies have gone from looking like they’re in great shape to distressed very quickly."

    Prudential Financial held $535 million of distressed debt measured by fair value in the second quarter, the most of any insurer in the peer group tracked by Bloomberg Intelligence in absolute terms but less than one tenth of a percent of its overall assets. The company had $383 million of distressed bonds at the end of 2015.

    Still Cautious

    Distressed bonds are a small percentage of most life insurers’ investments, accounting for less than a tenth of a percent of the industry’s assets, and the companies can hold onto them for a long time, giving them leeway to work out difficulties and recover as much money as possible. The firms are refraining from taking excessive risk now, said Peter Wirtala, a strategist at Asset Allocation & Management Co., which manages $17.9 billion for about 100 insurance clients.

    "Even as urgently as everyone needs yield, they’ve been cautious on the asset front," Wirtala said.

    Still, distressed assets are likely to keep piling up at insurers as the price of oil remains around $40 a barrel, said Sasha Kamper, a senior research analyst focusing on distressed holdings at Principal Financial Group Inc.’s asset manager.

    "We are near the peak of the credit cycle, and we will expect to see increased defaults going forward," Kamper said.

    S&P Global Ratings said on Thursday that 111 companies globally have defaulted so far this year, the highest number since 2009, during the financial crisis. Energy and natural resources account for about 53 percent of those defaults.

    Even if distressed holdings are largely accidental now, regulators are considering proposals that could ease the amount of capital life insurers can use to fund junk bonds, which makes it more profitable for the companies to increase their investment risk. Life insurance companies are seeking more income as low bond yields globally corrode their investment returns.

    Under current rules from the National Association of Insurance Commissioners, which sets standards for the U.S. industry, a bond with a rating four steps below junk needs to be funded with capital equal to at least 10 percent of the bond’s value before taxes. The NAIC is considering a proposal to lower that to around 6 percent.

    Investors are likely to respond by buying more speculative-grade bonds, said AAM strategist Wirtala. They will probably also buy more investment-grade bonds with ratings close to the top of the spectrum, which can be funded with less capital, he said. The higher-quality assets can offset the lower quality ones from a capital use standpoint, he said.

    "This is really something we’re telling people to keep an eye on," Wirtala said.

    http://www.bloomberg.com/news/articles/2016-08-12/distressed-assets-pile-up-at-life-insurers-and-more-are-coming
    Back to Top

    Indonesian president approves plans to form state holding companies -minister


    Indonesia's president Joko Widodo has approved plans to create holding companies for state firms in oil, mining, financial services and food sectors, State-Owned Enterprise minister Rini Soemarno told reporters on Friday.

    "The president hopes the future industrial development will be done by state-owned companies," Soemarno said.

    PT Pertamina will be the holding company in oil and gas sector, and publicly-listed gas distributor PT Perusahaan Gas Negara will be one of its units, Soemarno said.

    State aluminium producer PT Inalum will be the holding company for mining sector, while PT Danareksa will be the holding in financial service sector.

    http://www.reuters.com/article/indonesia-companies-idUSJ9N15X02H
    Back to Top

    Zambia's Lungu leads in election, main opponent alleges irregularities


    President Edgar Lungu was leading in Zambia's presidential election on Monday, with 85 percent of the constituencies counted, but his main rival demanded a recount in a key district, citing irregularities.

    Lungu faces a stiff challenge from United Party for National Development (UPND) leader Hakainde Hichilema, who accuses him of running the economy down, a charge the president has rejected.

    With 50.14 percent, Lungu was ahead of Hichilema, with 47.7 percent, after results were collated from 132 of 156 constituencies in Aug. 11 voting, the Electoral Commission of Zambia (ECZ) told a news conference.

    But Hichilema told a separate media briefing his party wanted a recount of votes in Lusaka district "for the sake of free, fair, credible and transparent elections".

    "The question is will the elections be defined as free and fair, transparent and credible in this environment? My answer is no," Hichilema said.

    "Zambia needs to remain peaceful. Anybody seeking political office wants to make sure that they take over a country that is peaceful and stable so that you can implement your vision."

    The winner of the presidential election in one of the most stable democracies in Africa must get more than half the vote, failing which the top two candidates face a re-run.

    The UPND said on Saturday that data from its own parallel counting system showed Hichilema beating Lungu "with a clear margin", based on about 80 percent of votes counted.

    All parties have access to the raw voting data and may add up the results faster than the national commission.

    The ECZ had hoped to have final results from the elections - in which Zambians also chose members of parliament, mayors and local councillors and decided on proposed constitutional changes by early Sunday.

    But it said the process had been lengthened by a large voter turnout, now at 56.22 percent, far above 32 percent last year, when Lungu won an election to replace Michael Sata, who died in office.

    The commission and Lungu's Patriotic Front have both rejected the UPND's charges that some officials were working to manipulate results to help the ruling party.

    One of its officials accused Hichilema of making inflammatory statements.

    "Our main concern is that Mr Hichilema has decided to take his frustrations to a criminal level," said Given Lubinda, a member of the parliament dissolved ahead of the vote.

    Supporters of the two main parties clashed over rising unemployment, mine closures, power shortages and soaring food prices after weak global prices hit exports of copper, the mainstay of the economy.

    http://www.reuters.com/article/us-zambia-election-idUSKCN10Q0AO
    Back to Top

    Anglo's top shareholder could reduce it to diamond-only miner


    The world's number five diversified mining company, Anglo American announced a "radical portfolio restructuring" at the end of last year. The company with roots going back more than a hundred years to South Africa's gold and diamond fields said it would cut around 85,000 employees, almost two-thirds of its workforce.

    London-listed Anglo also said it's reducing the number of mines it operates from 55 to as few as 16 to focus on diamonds, copper and platinum because of better long-term potential. Its nickel, coal and iron ore assets will be put up for sale.

    Now it appears Anglo's largest shareholder, South Africa's Public Investment Corporation would prefer an even more drastically downsized company.

    PIC, which manages state pension funds of more than $130 billion, has grown its stake in the company to more than 13%, after picking up shares earlier in the year when Anglo was worth less than $5 billion, down from a a peak of $70 billion in 2011.

    "If they did this, it would be the end of Anglo"

    Various media reports say PIC which is overseen by South Africa's minister of finance wants to bundle all of Anglo's assets in the country into a single entity with its platinum mines as the crown jewels. PIC also owns 30% of world number three platinum producer Lonmin.

    The African nation's platinum mines, responsible for nearly 70% of global output, employs more than a hundred thousand workers and labour strife, sometimes accompanied by violence, has become a regular feature of the industry.

    Bringing the sector, which is seen as a vital strategic asset for the country, under greater state control has been a goal of the ruling ANC party which recently suffered a stinging rebuke from voters in local elections.

    Anglo CEO Mark Cutifani is said to have resisted PIC's demands when it comes to jettisoning Amplats, but the slow progress of asset sales to tackle the company's crippling (and junk rated) debt is adding to pressure.

    TheAustralian newspaper (where predictions of Anglo's demise is a popular sport) speculates that "carving out all the South African operations would reduce Anglo "to a middling player focused on just two divisions — its highly coveted copper mines and diamond giant De Beers":

    “If they did this, it would be the end of Anglo. There would be a queue of bidders for copper, offering big numbers that they would find it very hard to turn down. That would leave it with De Beers.”

    Anglo's market value is up a stunning 186% so far this year for a market capitalization of $16.1 billion on the back of stronger iron ore, coal and platinum prices.The platinum price is performing better than gold in 2016 with a year to date advance of a shade over 33%, while iron ore has surged by more than 40% and met coal is back in triple digits.

    Given Anglo's great run since January, the consensus view has become more bearish and further upside for the stock may be limited. Of 24 analysts reporting on the stock 11 expect the company to underperform going forward while five brokerages are urging investors to sell at these levels.

    http://www.mining.com/anglos-top-shareholder-reduce-diamond-miner/
    Back to Top

    Oil and Gas

    Hike in Saudi Arab Extra Light crude oil supply to weigh on Murban, DFC: traders


    Saudi Arabia plans to increase production of Arab Extra Light crude in coming weeks, which could translate to weaker spot differentials for similar grades in the Middle East, market participants said Friday.

    Industry sources had said earlier this month that the production of Arab Extra Light crude was expected to rise by about 200,000 b/d from September, though Saudi Aramco could not immediately be reached for comment.

    "[Saudi Aramco's] October supply volumes [of Arab Extra Light] to term lifters would be increased... or perhaps some term customers may want to lift additional volumes if the incremental cost is lower than what they would have to pay to grab additional [light sour crude] barrels in the spot market," said a North Asian sour crude trader with knowledge of allocations in Saudi Arabian term crude liftings.

    The talk of higher Saudi output emerged soon after Saudi Aramco slashed the September official selling price differentials for its crudes bound for Asian buyers early in the month.

    At the start of the month, Aramco cut the OSP of its Arab Light crude loading in September and bound for Asia by $1.30/b, making it the lowest price since January. The September OSP of Asia-bound Arab Super Light crude was cut by 80 cents/b from August and Extra Light by $1.60/b.

    Market participants said Aramco's bigger-than-expected OSP cuts and the planned fourth quarter output increase suggested that the major Middle Eastern producer was stepping up efforts to remain price competitive in order to appeal to Asian end-users and fend off competition from Europe's North Sea crude suppliers amid a narrowing Brent-Dubai spread.

    The second-month Brent/Dubai EFS -- which enables holders of ICE Brent futures to exchange their Brent futures position for a forward-month Dubai crude swap -- was assessed at $2.58/b Thursday, close to the eight-month low of $2.27/b reached on July 29.

    Regional sour crude traders said Saudi Arabia could also be aiming to sell additional barrels in order to make up for any losses in oil revenue incurred due to the recent sharp pullback in international flat prices, with front-month ICE Brent futures tumbling to three-month lows late last month.

    "Crude prices around and below $40/b would worry many producers, not just the Saudis," said a crude trader based in South Asia.

    Regional traders said Saudi Arabia's plan to increase the production of Arab Extra Light crude later this month, on top of dismal light distillate margins and the narrow Brent-Dubai spread, would likely deter many Asian buyers from Abu Dhabi and Qatari supplies.

    Trading has remained thin in Abu Dhabi's light sour crude market to date, while very little has been heard on pre-tender deals for Qatar's deodorized field condensate and low sulfur condensate for loading in October, a week before Tasweeq's tender closes on August 16.

    "There are more Arab Extra Light crude [available for Q4]," said a Singapore-based crude and condensate trader, adding: "I think a lot of end-users are rushing to secure incremental Saudi barrels first. After that, focus might just turn to light sour Murban and Qatari condensates, maybe." "Buyers are quiet... it might be a very slow trading month [for Qatari condensates]," said a Tokyo-based crude trader. The gap between offers and buying indications for Qatar's DFC was very wide, with several North Asian end-users looking to buy October-loading DFC at a premium of around $1/b to Platts front-month Dubai crude oil assessments, while some suppliers were aiming to sell above Dubai plus $1.70/b, he added.

    In comparison, most DFC cargoes for loading in September received premiums in the range of $1.70-$1.90/b to Dubai crude last month. The expected increase in the production of Saudi Arab Extra Light crude continued to affect sentiment in the broader light sour crude complex in the Middle East, with end-users across Asia adjusting their buying ideas for Murban and Das Blend lower.

    Asked about the near-term price differential outlook for October-loading Murban crude, several traders said the grade could change hands at a discount to Murban's OSP, indicating that sentiment was deteriorating despite ADNOC's recent cuts in OSPs.

    Four regional traders surveyed by S&P Global Platts last week had tipped Murban to trade at a small premium to the grade's OSP this month. "Arab Extra Light supply will be the key [factor for Murban's price outlook] ... the narrow [Brent-Dubai] EFS will certainly do some damage, too," said a Southeast Asian trader.

    http://www.platts.com/latest-news/oil/singapore/hike-in-saudi-arab-extra-light-crude-oil-supply-26520792

    Attached Files
    Back to Top

    Oil Bulls Take Heart as OPEC Rekindles Output Freeze Hopes


    All it took was a few words from OPEC to encourage oil bulls.

    Money managers increased wagers on rising crude prices by the most since January as futures rebounded from a three-month low. Prices jumped after OPEC’s president said Aug. 8 the group will hold informal talks in Algiers next month and Saudi Arabia signaled Aug. 11 it’s prepared to discuss taking action to stabilize markets.

    "The statement certainly achieved its purpose," said Daniel Yergin, vice chairman of IHS Markit. "The Saudis saw bearish bets had really driven down the prices."

    Talks between OPEC members and other producers may result in action to stabilize the market, Saudi Arabia’s Energy Minister Khalid Al-Falih said. Members of the Organization of Petroleum Exporting Countries are in “constant deliberations,” according to a statement on OPEC’s website attributed to Mohammed bin Saleh Al-Sada, Qatar’s energy and industry minister and the group’s current president.

    Hedge funds bolstered their long position in West Texas Intermediate crude by 17,154 futures and options combined during the week ended Aug. 9, according to the Commodity Futures Trading Commission. WTI rose 8.3 percent to $42.77 a barrel in the report week. Prices gained 0.8 percent to $44.85 a barrel as of 1 p.m. Hong Kong time on Monday after posting the biggest weekly gain since April.

    "The Saudis are very conscious of the financial markets and how they exaggerate price moves," Yergin said.

    Differences between Saudi Arabia and Iran caused the demise of a proposal to freeze production at an April summit in Doha. The kingdom insisted it wouldn’t restrain output without commitments from all OPEC members, including Iran, which has boosted crude production and exports after years of sanctions were lifted in January.

    "A freeze may be on the table, maybe more," said Mike Wittner, head of oil market research at Societe Generale SA in New York. "The Saudi comments leave the door open to anything, as opposed to Doha where they killed the deal. The fact that the Saudis are open to any action is an important signal. The Iranians have pretty much done what they wanted to do, which will make them more open, and the Saudis seem open as well."

    Refinery Demand

    Refiners around the world will process a record 80.6 million barrels a day of crude this quarter to absorb all-time high production from several Persian Gulf producers, the International Energy Agency said Aug. 11.

    "The market is moving towards balance with a huge overhang," Yergin said. "We see supply and demand roughly in balance, and if there are no additional disruptions prices should be in the mid $50s next year."

    Rising U.S. crude stockpiles and weakening demand from the nation’s refineries may weigh on prices. Crude supplies rose 1.06 million barrels million as of Aug. 5, Energy Information Administration data show. Over the past five years, refiners’ thirst for oil has fallen an average of 1.2 million barrels a day from July to October.

    Money managers’ long position in WTI rose to 322,594 futures and options, the highest since May 2015, CFTC data show. Shorts, or bets on falling prices, increased 0.7 percent and were at a record for a second week. Net longs advanced 18 percent, the biggest jump since March.

    "The Saudi statement could mean anything," said Tim Evans, an energy analyst at Citi Futures Perspective in New York. "They said that there will be informal meeting of OPEC members on the sidelines. That could be anything from coffee and cake on a terrace to a closed-door meeting to decide on specific production proposals."

    http://www.bloomberg.com/news/articles/2016-08-14/oil-bulls-take-heart-as-opec-rekindles-hopes-of-output-freeze
    Back to Top

    Saudi Minister hints at market rebalance


    Saudi Energy Minister Kahlid al-Falih made remarks suggesting Saudi Arabia might be willing to revisit talks with members of the Organization of Petroleum Exporting Countries and other producers on limiting production.

    “If there is a need to take any action to help the market rebalance, then we would, of course in cooperation with OPEC and major non-OPEC exporters,” al-Falih said.

    Some analysts remain skeptical that Saudi Arabia would support a collective production cap. An April meeting between OPEC and non-OPEC producers failed to reach any such agreement.

    But future talks on the same topic are being discussed. Qatar’s Energy Minister and OPEC Pres. Mohammed bin Saleh al Sada has said cartel members will participate in such talks Sept. 26-28 on the sidelines of the International Energy Forum in Algeria.

    http://www.ogj.com/articles/2016/08/market-watch-nymex-brent-oil-prices-rebound-on-saudi-comments.html
    Back to Top

    China crude output falls to five-year low in July

    China crude output falls to five-year low in July

    China's crude oil production in July fell 8.1 percent from a year ago to the lowest since October 2011 on a daily basis, as low prices limit the incentive to keep some wells operating in the world's fourth-largest oil producer.

    Crude output last month was 16.72 million tonnes in July, data from the National Bureau of Statistics showed on Friday. On a daily basis July's production is about 3.94 million barrels per day (bpd), down from June's 4.03 million bpd and the fifth straight month of declines in terms of daily output.

    For the first seven months of 2016, production was down 5.1 percent versus the same period last year to 118.35 million tonnes, or about 4.06 million bpd.

    Dominant domestic producers PetroChina and Sinopec have both projected output declines this year as many of their fields began to operate at a loss, especially during the first quarter when oil prices sank below $40 a barrel.

    Sinopec said in July that their domestic production in the first half of 2016 was down 12.95 percent to 128.38 million barrels, or about 705,000 bpd.

    In addition to production that is not viable economically, China is also grappling with aging oil fields that are increasingly running out of oil and gas.

    Daqing, China's largest field, which produced first oil in 1960, will decline at a rate of 7.2 percent this year, its fastest pace in the last 20 years, according to consultants Energy Aspects.

    Natural gas output last month fell 3.3 percent compared with the year ago period to 10.3 billion cubic meters, though for the first seven months of the year production rose 3.1 percent to 79.4 billion cubic meters, the stats bureau said.

    Throughput at China's oil refineries rose 2.5 percent in July from a year earlier to 45.32 million tonnes, or 10.67 million bpd, according to the bureau. That was down from June's runs of 10.97 million bpd.

    Crude runs in the January to July period rose 2.5 percent year on year to about 10.69 million bpd, according to the data.

    http://www.reuters.com/article/china-economy-output-crude-idUSL3N1AT1FK
    Back to Top

    China's July refinery throughput retreats from record highs

    China's July refinery throughput retreats from record highs

    China's refinery throughput in July retreated from the previous month's record highs as refiners lowered runs because of weak domestic demand, a trend that could extend into August when many state-owned and independent refiners are likely to undergo maintenance.

    After surging to a historical high of 11.02 million b/d in June, China's refinery throughput in July took a breather, easing 2.7% month on month to 10.72 million b/d, although it was 2.5% higher from July 2015, S&P Global Platts calculations based on preliminary data released Friday by the National Bureau of Statistics showed.

    The country processed 45.32 million mt of crude in July, NBS data showed.

    On a b/d basis, throughput in July was slightly lower than the average 10.73 million b/d over the first seven months. China refined 311.86 million mt of crude oil over January-July, up 2.5% from the same period last year, NBS data showed.

    NBS does not release its methodology for the statistics, but market observers said that the data covered throughput from all state-owned refineries as they are required to submit all their operational data to the the bureau, and covers some data from independent refiners which may or may not submit the full data.

    THE PRICE IMPACT

    A monthly survey by Platts in July had shown that 26 of China's largest state-owned refineries, operated by Sinopec, PetroChina and China National Offshore Oil Corporation, planned to run their plants at an average 81% of nameplate capacity, up one percentage point from 80% in June, because Sinopec had planned to lift throughput ahead of maintenance at its Tianjin, Qilu and Shanghai refineries.

    But it likely did not happen.

    "The plants have flexibility to adjust their refining plans according to the market situation, which remained weak last month," said a source with a Sinopec refinery.

    The cut in oil product prices also discouraged refining.

    A Shanghai-based analyst said: "The cut in oil product prices in second-half July also discouraged refining."

    China on July 21 announced a cut in guidance retail prices for gasoline and gasoil by Yuan 155/mt ($23.33/mt) and Yuan 150/mt, respectively. It was the first price cut since January 13.

    The country's independent refineries in Shandong also reduced their throughput in July by 7% month on month because of maintenance and poor domestic sales, Platts has reported.

    Domestic sale of gasoline and gasoil from Shandong-based independent refineries registered month-on-month declines of 8.87% and 9%, respectively, in July, Platts calculations based on data from Beijing information provider JYD showed.

    Looking forward, throughput in August is expected to fall further because of additional maintenance plans both at state-owned and independent refineries, analysts said.

    http://www.platts.com/latest-news/oil/singapore/chinas-july-refinery-throughput-retreats-from-26520699

    Attached Files
    Back to Top

    Turkey wants to buy more gas from Iran, resolve price dispute: foreign minister

    Turkey wants to buy more gas from Iran, resolve price dispute: foreign minister

    Turkey wants to buy more natural gas from Iran and has discussed pricing issues, Foreign Minister Mevlut Cavusoglu said on Friday, adding that Ankara and Tehran should resolve a dispute on gas prices without arbitration.

    Cavusoglu made the comment at a joint news conference with his Iranian counterpart, Mohammad Javad Zarif in Ankara. Zarif is on an official visit to Turkey.

    http://www.reuters.com/article/us-turkey-security-iran-gas-idUSKCN10N12O
    Back to Top

    Brazil’s Petrobras cuts LNG imports by 56 pct

    Brazil’s Petrobras cuts LNG imports by 56 pct

    Brazil’s state-controlled oil and gas company Petrobras said its liquefied natural gas imports dropped by 56% in the first half of this year.

    Petrobras attributed this decline to higher domestic gas supply and lower thermoelectric demand in Brazil.

    LNG imports into Brazil stood at 54 Mbbl/d (thousand barrels per day), as compared to 122 Mbbl/d in the same period a year before, Petrobras said in its second-quarter report.

    Petrobras is aiming to reduce its role in the Brazilian natural gas and LNG industry. The company recently announced it will sell its LNG terminals in Rio de Janeiro and Ceará, along with the thermoelectric power plants associated with these terminals.

    The Brazilian company also said it is selling its LPG distribution unit, Liquigás Distribuidora.

    Petrobras’ net income fell 30 percent to 370 million reais ($118 million) in the second-quarter compared with a profit of 531 million reais a year earlier, according to the report.

    http://www.lngworldnews.com/brazils-petrobras-cuts-lng-imports-by-56-pct/
    Back to Top

    Santos flags $1.05 billion GLNG impairment

    Santos flags $1.05 billion GLNG impairment

    Australian LNG operator Santos on Monday said it is writing down the value of its GLNG project in Queensland due to low oil and gas prices.

    Santos expects to recognise an impairment charge against the carrying value for its GLNG project of about US$1.05 billion after tax ($1.5 billion before tax) in its 2016 half-year accounts.

    The impairment outcome is subject to finalisation of the half-year accounts, which will be released on August 19, Santos said, adding it will be a non-cash charge and will “not affect the company’s debt facilities.”

    According to Santos, during the course of this year there has been a slower ramp up of GLNG equity gas production and an increase in the price of third party gas. This has caused the Australian LNG operator to adjust its upstream gas supply and third party gas pricing assumptions for GLNG, Santos said.

    “The expected impairment charge for GLNG is clearly disappointing but it is a consequence of the challenging environment which we now face. We have decided to adjust our long-term operating assumptions for GLNG to reflect the reality of the current oil price environment,” said Santos chairman Peter Coates.

    “However, we firmly believe in the strong long-term growth of LNG consumption and demand globally. GLNG will continue to be an important part of our LNG portfolio and a key supplier of LNG to the Asian market,” Coates said.

    Santos started producing the chilled fuel from the first GLNG train on Curtis Island in September 2015. The second train at the $18.5 billion GLNG project started producing liquefied natural gas in May this year.

    The company has a 30% interest in Australia’s GLNG. Other co-venturers include Petronas (27.5%), Total (27.5%) and Kogas (15%).

    Santos reported earlier this year a net loss of A$2.7 billion ($1.93 billion) for 2015, after booking A$2.8 billion in impairment charges also blaming low oil and gas prices.

    The impairment charges related to the company’s Cooper Basin gas producing assets, GLNG assets and Gunnedah Basin assets,

    “Low oil and gas prices continue to challenge our upstream business and the entire oil and gas industry,” Santos chief executive Kevin Gallagher said in the statement on Monday.

    “We will continue to maintain a disciplined approach to capital allocation, reducing costs and seek opportunities to optimise our asset portfolio in a manner that delivers value to shareholders.”

    http://www.lngworldnews.com/santos-flags-1-05-billion-glng-impairment/
    Back to Top

    U.S. oil more resilient than thought


    Some of the oil reserves in the United States may be more resilient to weak oil prices and show slow, but steady, production gains, a federal report finds.

    A review from the U.S. Energy Information Administration finds global tight oil, a lighter grade of crude oil found typically in shale deposits, is expected to double by 2040 to about 10.4 million barrels per day. Most of that, the report found, will come from the United States.

    "United States tight oil production, which reached 4.6 million bpd in March 2015, but fell to 4.1 million bpd in June 2016, has proven more resilient to low oil prices than many analysts had anticipated," the report read.

    In its reference case, EIA estimates total U.S. tight oil production reaches 7.1 million bpd by 2040.

    EIA made a similar conclusion in June regarding shale natural gas. About half of all of the natural gas produced in the United States comes from shale gas reserves or is associated with so-called tight oil basins. Much of that comes from lucrative shale beds like the Eagle Ford basin in Texas and the Bakken play in North Dakota.

    The EIA's analysis found that, through 2040, total U.S. production from shale gas and tight oil more than doubles to 29 trillion cubic feet, accounting for about 69 percent of total output of natural gas in the country.

    Lower energy prices, off about 4.7 percent from this time last year even after recovering 68 percent from this year's lows, have robbed energy companies of the revenue needed for robust exploration and production programs. Nevertheless, most have said they expect to produce more as their operations become more efficient.

    Continental Resources, one of the largest stakeholders in the Bakken shale oil basin in North Dakota and Montana, said its production expenses were lower than it previously estimated by 11 percent. Based on that, the company said it expects to produce an average full-year production of around 215,000 barrels of oil equivalent per day, an increase of 5,000 boe per day from its previous estimate.

    North Dakota's government said oil production could stay above 1 million bpd through next year if oil prices stay around $45 per barrel. It set a record in December 2014, when oil traded in the $60 range, at 1.23 million bpd.

    Higher production volumes and sluggish global economic growth is keeping oil prices relatively lower. By 2040, EIA in its reference case estimates a price for Brent crude oil at $136 per barrel, a price last reached less than a decade ago.

    http://www.upi.com/US-oil-more-resilient-than-thought/8741471005587/
    Back to Top

    U.S. oil drillers add most rigs since December in longest streak in two years


    U.S. drillers this week added oil rigs for a seventh consecutive week, the longest recovery streak in the rig count in over two years, even as analysts revise down rig count growth forecasts and energy firms become more cautious the longer crude holds below $50 a barrel.

    Drillers also added the most oil rigs since December with 15 rigs activated in the week to Aug. 12, bringing the total rig count up to 396, compared with 672 a year ago, energy services firm Baker Hughes Inc said.

    That is the longest streak of rig additions since April 2014 when U.S. oil futures averaged over $100 a barrel. Since July 1, drillers have added 66 oil rigs.

    U.S. crude futures were up almost 2 percent to over $44 a barrel, putting the contract on track for a weekly gain near 6 percent, its biggest weekly increase since April, after it fell below $40 last week. [O/R]

    Prices, however, are still far from the key $50 level hit in June that analysts and drillers said would prompt a return to the well pad after nearly two years of severe cuts in the rig count amid the worst price rout in a generation.

    "Consensus among exploration and production companies, service companies, and land drillers is for a 'lower-slope' recovery, with concerns of the direction of oil prices still lingering, especially with the recent dip below $40 after averaging $48 in the middle of summer," analysts at Barclays said in a report this week.

    The bank said it still expects a modest increase in rig additions heading into the end of the year and through the first quarter of 2017, but revised down its total oil and natural gas rig forecast to an average of 480 from the 495 it projected in March.

    That, however, is not much higher than the average 477 oil and gas rigs that Baker Hughes said were active since the start of the year. In 2015, the total rig count averaged 978.

    Analysts at Simmons & Co, energy specialists at U.S. investment bank Piper Jaffray, forecast total rigs would average 489 in 2016, 680 in 2017 and 957 in 2018. That is a slight reduction from last week when Simmons forecast rigs would average 491 in 2016, 683 in 2017 and 961 in 2018.

    Since total rigs fell to 404 in May, the lowest since 1940, Baker Hughes said more than two-thirds of the additions have been in the Permian basin in west Texas and eastern New Mexico, the nation's largest shale oil play.

    Of the 481 total rigs active in the United States, 189 are in the Permian, the most in that basin since January.

    http://www.reuters.com/article/us-usa-rigs-baker-hughes-idUSKCN10N20N
    Back to Top

    Big Dakota pipeline to upend oil delivery in U.S.


    It may seem odd that the opening of one pipeline crossing through four U.S. Midwest states could upend the movement of oil throughout the country, but the Dakota Access line may do just that.

    At the moment, crude oil moving out of North Dakota's prolific Bakken shale to "refinery row" in the U.S. Gulf must travel a circuitous route through the Rocky Mountains or the Midwest and into Oklahoma, before heading south to the Gulf of Mexico.

    The 450,000 barrel-per-day Dakota Access line, when it opens in the fourth quarter, will change that by providing U.S. Gulf refiners another option for crude supply.

    Gulf Coast refiners and North Dakota oil producers will reap the benefits. Losers will include the struggling oil-by-rail industry which now brings crude to the coasts.

    The pipeline also will create headaches for East and West Coast refiners, which serve the most heavily populated parts of the United States and consume a combined 4.1 million barrels of crude daily. They will have to rely more on foreign imports.

    The pipeline, currently under construction, will connect western North Dakota to the Energy Transfer Crude Oil Pipeline Project (ETCOP) in Patoka, Illinois. From there, it will connect to the Nederland and Port Arthur, Texas, area, where refiners including Valero Energy, Total and Motiva Enterprises operate some of the largest U.S. refining facilities.

    "That's a better and cheaper path than going out West and down through the Rockies," said Bernadette Johnson, managing partner at Ponderosa Advisors LLC, an energy advisory based in Denver.

    CHEAPER THAN RAIL

    Moving crude by pipeline is generally cheaper than using railcars. The flagging U.S. crude-by-rail industry already is moving only half as much oil as it did two years ago: volumes peaked at 944,000 bpd in October 2014, but were around just 400,000 bpd in May, according to the U.S. Energy Department.

    Rail transport has become less economical for East and West Coast refiners when compared with importing Brent crude, the foreign benchmark, because declining supply out of North Dakota made that grade of oil less affordable.

    "If you look at the Brent to Bakken arb, it's tight," said Afolabi Ogunnaike, a senior refining analyst at Wood Mackenzie in Houston. "If you look at the spot rate, it's uneconomical to move crude by rail right now."

    Ponderosa Advisors estimated that the start-up of the pipeline could reroute an additional 150,000 to 200,000 bpd currently carried by rail to the U.S. East Coast and Gulf Coast.

    Crude imports into the East Coast are now on the rise, averaging 788,000 bpd this year, with nearly 960,000 bpd in July, the highest level in three years, according to Thomson Reuters data.

    On the West Coast, refiners like Shell, Tesoro and BP may have to commit to some railed volumes for longer because of shipping constraints, although it will largely depend on rail economics. They also face declining output from California and Alaska.

    Tesoro's top executive Gregory Goff told analysts and investors last week he expects rail costs to drop as much as 40 percent from the current $9-to-$10 barrel cost to compete with pipelines, in order to move Bakken to its Anacortes, Washington, refinery.

    CHANGING TIDES

    Rail companies have been trying to adapt. CSX Corp, which runs a network of lines in the eastern part of the country, said it was evaluating potential impacts of the pipeline. BNSF Railway declined to discuss future freight movements, but said that at its peak, it transported as many as 12 trains daily filled with crude, primarily from the Bakken. Today, it is moving less than half of that.

    In a recent earnings call, midstream player Crestwood Equity Partners said it was working to capitalize on the pipeline and not be dependent on loading crude barrels onto trains. That includes building an interconnection to its 160,000 barrel-per-day COLT crude rail facility in North Dakota.

    As refiners bring in more barrels from overseas, Brent's premium over U.S. crude will eventually widen. On Thursday, December Brent futures settled at a 97-cent premium to U.S. crude, one of its widest premiums this year.

    Separately, Bakken crude, a light barrel, could rise further due to the additional competition, especially as production is still falling. Bakken differentials hit a six-month low earlier this week of $2.65 a barrel below WTI, according to Reuters data, but rose to a $1.80 a barrel discount by Thursday.

    http://www.reuters.com/article/us-usa-oil-pipeline-idUSKCN10N0HP
    Back to Top

    Experts Say New Marcellus/Utica Drilling “Imminent”


    We’d never heard this before, but apparently the Marcellus/Utica has been known for some time as the “Beast of the East.” Fitting! However, our region has gone from “Beast of the East” to “Beast on a Leash.”

    Very true. Low prices have suppressed new drilling projects. But according to experts on a recent webinar held by S&P Global Platts, new Marcellus/Utica drilling “is imminent.” Now that’s REALLY good news!

    http://marcellusdrilling.com/2016/08/experts-say-new-marcellusutica-drilling-imminent/
    Back to Top

    Sabine Oil & Gas Emerges from Bankruptcy as Private Company


    Sabine Oil & Gas Corporation has confirmed that its Chapter 11 Plan of Reorganization, which was confirmed by the United States Bankruptcy Court for the Southern District of New York July 27, is now effective and revealed that it has emerged from bankruptcy as a private company.

    In conjunction with its emergence from Chapter 11, the company closed on its new senior secured credit facility, which has commitments of $200 million and an initial borrowing base of $150 million, and on its new $150 million second lien term loan.

    The company completed an effective balance sheet restructuring that involved a debt-for-debt exchange, a debt-to-equity conversion, and the issuance of warrants to purchase stock in the newly-formed parent holding company of the reorganized company. Sabine emerged from bankruptcy with a “significantly stronger” balance sheet and “renewed ability to focus on creating value from its compelling asset base,” according to a company statement.

    “Sabine has successfully restructured its balance sheet, addressing its leverage and liquidity needs,” said Sabine Chief Executive Officer David Sambrooks.

    “Throughout this process we have valued and appreciated the support and guidance of our outgoing board of directors as well as our professional advisors. Above all, I am humbled by the dedication and outstanding effort of our employees, and have great optimism for the next chapter of our organization. We look forward to working under the guidance of our new, remarkably experienced board to create value for our new ownership group.”

    http://world.einnews.com/article/339663224/8ZfzpBGdbhupwcta
    Back to Top

    Precious Metals

    AngloGold’s free cash trebles, slashes net debt


    Gold mining company AngloGold Ashantiannounced on Monday that it had more than trebled free cash flow generation in the first half of the year to $108-million and lowered net debt by almost a third, as costs fell and it took advantage of a higher gold price.

    In its presentation of results for the six months to June 30, the company reported half-year gold production of 1.745-million ounces as being in line with the full-year guidance range of 3.6-million ounces to 3.8-million ounces.

    Total cash costs were at $706/oz, a 3% improvement on the $726/oz in same period last year.

    All-in sustaining costs (AISC) were $911/oz, a $13/oz improvement year-on-year.

    Adjusted headline earnings of $159-million were more than double, compared to the same period last year.

    Going forward, CEO Srinivasan Venkatakrishnan(Venkat) made it clear in response to Mining Weekly Onlinethat as its current strategy had been designed to cope with all market conditions, the company would continue to improve cash flows and returns on a sustainable basis and to develop optionality within the business.

    "We will continue to push hard to improve operational and cost performance as well as our overall balance sheet flexibility, regardless of the gold price environment," Venkat said.

    The company’s focus remained to improve margins and grow cash flow and returns on a sustainable basis.

    Production of 1.745-million ounces compared with the 1.878-million ounces in the corresponding period of last year.

    The decrease in production from continuing operations was led by weaker production from Kibali and a planned decrease in head grades at Tropicana.

    AISC improved by $13/oz over the first half of last year, reflecting continued cost discipline, weaker currencies and lower capital expenditure.

    The South African operations reported a 3% drop in production year-on-year to 486 000 oz, alongside a 13% improvement in AISC, which declined to $958/oz from $1 098/oz in the corresponding period last year.

    South Africa’s deep-level Mponeng gold mine delivered the standout performance in the region, with a 25% increase in production and a 28% decrease in AISC year-on-year.

    However, while the weaker rand benefited costs, production continued to be hampered by increased safety-related stoppages, which had become a feature of the country'sunderground mining industry.

    The company complained that the frequent and unpredictable nature of Section 54 stoppages and mass compliance audits by the Department of Mineral Resourceshad created an element of risk to production levels from the region, given the resultant downtime and production ramp-up periods.

    The international operations delivered production of 1.259-million ounces at an AISC of $873/oz, compared with 1.378-million ounces at an AISC of $840/oz in the same period last year.

    These mines, all outside South Africa, accounted for 72% of AngloGold's total production, and benefited from weaker currencies in Argentina, Australia and Brazil.

    There were especially strong cost performances from Sunrise Dam and Cerro Vanguardia, which posted significantefficiency gains during the first half of 2016.

    As indicated at the beginning of the year, production was lower in accordance with the plans at Geita and Tropicana, while Kibali continued to face challenges encountered inmining and processing different ore types, and the first attempt during the first quarter to test the transition to asulphide processing circuit.

    Half-year capital expenditure (capex), including equity accounted entities, was $318-million, compared with $426-million, including discontinued operations, in the same period last year.

    This reduction was partially due to favourable exchange rate movements, impediments in reaching investment targets caused by ongoing safety stoppages in South Africa, and the cessation of work on the underground decline access at Obuasi, in Ghana.

    Capex is expected to increase in the second half of the year in line with past trends.

    Negative working capital movements that inhibited free cashflow are poised to unwind in the second half of the year, specifically $28-million from the sale of metal fromArgentina, which was delayed until the week immediately following the half-year.

    The overall free cash flow improvement was driven by continued efforts to contain costs and improve efficiencies, weaker currencies in key operating jurisdictions, $33-million in interest savings, and a 1% higher gold price received.

    Cash inflow from operating activities decreased by $37-million, or 7%, from $513-million in the corresponding six months last year to $476-million in this half-year, reflecting a 7% drop in production from continuing operations and negative working capital movements, which included timing of gold shipments from Argentina, and movements in value-added tax receivables in South Africa.

    Adjusted half-year headline earnings were $159-million, or 39c a share, compared with $61-million, or 15c a share, in the first half of last year.

    Net profit attributable to equity shareholders during the first half of 2016 was $52-million compared with a net loss from continuing operations of $23-million a year earlier.

    During the six months to June 30, AngloGold settled foreign denominated debt resulting in a recycling of historic foreign exchange losses of $60-million, which was added back for headline earnings.

    In addition, the effective tax rate reduced from 113% to 46% as the tax charges decreased from $115-million to $51-million, largely due to the currency impact on the translation of the deferred tax balance in South America.

    Adjusted earnings before interest, taxes, depreciation and amortisation (Ebitda) decreased by 2% to $781-million.

    Lower production year-on-year was largely offset by cost improvements over the same period.

    The ratio of net debt to adjusted Ebitda was 1.44 times, compared with the 1.47 times recorded at the end of March 2016, and 1.95 times at the end of June 2015, owing to continued efforts to sustain cash-flow improvements.

    Net debt fell by 32% to $2.098-billion on proceeds received from the sale of Cripple Creek & Victor for $819-million as well as continued strong cost management, which saw improvements across most cost areas.

    http://www.miningweekly.com/article/anglogolds-free-cash-trebles-slashes-net-debt-2016-08-15

    Attached Files
    Back to Top

    Base Metals

    MMG races to ramp up copper mine

    MMG races to ramp up copper mine

    Melbourne-based miner MMG is going full speed in ramping up its Las Bambas operation in Peru, the biggest copper mine built for more than a decade, beating expectations and sparking a rerating from Macquarie.

    The $10 billion mine (including purchase and capital costs) in the southern Andes produced 87,142 tonnes of copper concentrate in the June quarter, up from 31,470 tonnes in the previous quarter.

    This puts it an annual production rate of 348,000 tonnes and shows its ramp-up to the 450,000 tonnes that Macquarie estimates the mine will produce at in 2017 is well under way.

    “I think we’ve set a new global benchmark for major copper project commissioning and ramp up,” MMG chief Andrew Michelmore told analysts on a recent call after the company’s second-quarter report.

    The Chinese-controlled, Hong Kong and Australian-listed MMG led a consortium that bought Las Bambas off Xstrata two years ago for $US5.8bn. Xstrata had been told it would need to sell the mine to get Chinese clearance for Glencore’s takeover of Xstrata.

    Macquarie analysts had only been expecting about 75,000 tonnes of copper in concentrate to be produced at Las Bambas during the June quarter.

    “It’s an amazing result, getting Las Bambas up and running that quickly,” Macquarie analyst Ben Crowley said. Last week, Macquarie boosted its target price on MMG’s Australian-listed shares from $3.15 to $5.80 and raised its rating on the stock from neutral to outperform.

    “While liquidity in the stock remains challenging, we believe exposure to Las Bambas is worth the effort,” Mr Crowley said.

    “Even at current copper prices, we estimate the mine will generate annual cash flow of over $US1bn. MMG offers leverage to copper that is second to none.”

    MMG’s thinly traded Australian shares last changed hands at $3.49 on August 3. The previous trade was made on May 9, illustrating just how illiquid the depositary instruments, which first became tradeable on the ASX in March, are.

    MMG operates and owns 62.5 per cent of Las Bambas, which it expects to be the world’s sixth-biggest copper mine next year. China’s Guoxin International Investment owns 22.5 per cent and Citic owns 15 per cent.

    On the call, Mr Michelmore said he believed that copper prices, near six-year lows of $US2 a pound, did not reflect the actual global supply and demand balance.

    “My view on copper is that it is going to be much tighter than the market is projecting,” Mr Michelmore said.

    “But it’s actually manipulated by people who are shorting, running stories of lack of consumption in China, and a pile of other stories,” he said.

    http://www.theaustralian.com.au/business/mining-energy/mmg-races-to-ramp-up-copper-mine/news-story/d7315a85be6638f73a275c5c96a0da2d?utm_source=twitterfeed&utm_medium=twitter&utm_campaign=Feed%3A%20TheAustralianBusinessMiningEnergy%20(The%20Australian%20%7C%20Business%20%7C%20Mining%20and%20energy)
    Back to Top

    Congo State miner says to increase copper output 40% this year

    Congo State miner says to increase copper output 40% this year

    Democratic Republic of Congo's state miner Gecamines expects to increase copper production by over 40% this year as new machinery comes online, the company said on Friday.

    Gecamines plans to produce 24 000 tonnes of copper this year and 50 000 tonnes next year, interim director-generalJacques Kamenga told Reuters. This is up from about 17 000 tonnes in 2015, according to central bank figures.

    The increase in production will be driven by a new concentrator at the company's Kambove site, new electrical lines and a machine to crush ore at its Kamatanda mine, Kamenga said.

    "We have all the mechanisms in place to reach that production level," he added.

    The company's output peaked at close to 500 000 tonnes in 1986, but then fell during decades of political upheaval, mismanagement and asset sales. In recent years, investments by companies like Glencore and Freeport-McMoRan have helped make Congo Africa's top copper producer.

    Congo, the world's fifth-biggest copper producer, produced 990 000 tonnes of the metal last year, down from 1.03-million tonnes in 2014.

    In June, Gecamines announced a modernisation plan for 2016 to 2020 that will see the company invest $717-million inoperations in a bid to increase production to over 100 000 tonnes per year.

    However, similar promises have failed to pan out. Gecaminesis some $1.6-billion in debt and Prime Minister Augustin Matata Ponyo sharply criticized the company in May for poor leadership and a lack of transparency, charges the company rejects.

    Kamenga also said negotiations are ongoing with China Nonferrous Metal Mining Company (CNMC) over major investments the company is supposed to make in two factories, including one at Deziwa, Gecamines' flagshipproject.

    Congo's copper production surpassed 1-million tonnes for the first time in 2014 but slumping commodity prices caused output to fall about 20% in the first quarter of this year.

    http://www.miningweekly.com/article/congo-state-miner-says-to-increase-copper-output-40-this-year-2016-08-15
    Back to Top

    Iridium prices press higher on continued industrial interest

    Iridium prices press higher on continued industrial interest

    Iridium prices continued to move higher this week on more inquiries from industrial consumers, though trade sources disagreed about how much metal was actually sold.

    The Platts New York Dealer iridium price moved to $540-$580/oz this week from $528-$575 last week on inquiries and sales to industrial consumers, one of whom requires high-purity material.

    Trade sources cited continued inquiries and buying from three industrial consumers specifically, including one with high purity needs.

    "Because of that, you have to get the high-purity iridium and no one wants to give it away," one PGM dealer/broker said Thursday, referring to the reluctance of some South African producers to release sizeable quantities.

    As a result, dealers and refiners are having to scramble for material, "and no one really has it," said the dealer, putting this week's range of sales at $550-$590.

    Only about 3-4 mt (about 106,000-141,000 oz) of iridium are produced each year. Production by Anglo American Platinum accounts for more than half of total global output.

    The iridium consumers are based in Asia, trade sources said. "There are three solid bids in the market and they keep buying," a second PGM dealer/broker said, putting this week's range of physical deals at $550-$595.

    The dealer/broker and a PGM refiner said the consumer demand was being driven in part by a perceived lack of supply. "Once that price starts moving a little bit you see some fence-sitters jumping in and trying to buy it up," the refiner said, putting this week's range at $540-$590. "It creates a domino effect."

    But other sources questioned how much iridium had actually been sold as opposed to inquiries or negotiations.

    One European dealer/broker who saw the market at $540-$580 said, "There's certainly been a lot of interest, but I don't know how much business has actually been transacted," he said.

    Iridium is used by the electronics industry to produce high-temperature crucibles. The crucibles used to grow synthetic sapphire crystals, which are used in light-emitting diode (LED) displays.

    http://www.platts.com/latest-news/metals/washington/iridium-prices-press-higher-on-continued-industrial-21241264
    Back to Top

    Steel, Iron Ore and Coal

    China to use tougher environmental standards to tackle capacity glut

    China to use tougher environmental standards to tackle capacity glut

    China will use the stricter enforcement of environmental, safety and energy efficiency standards as well as tougher credit controls to help fight against overcapacity in key industrial sectors, the government said.

    The world's second-largest economy has identified overcapacity as one of its key challenges and it has already pledged mass closures in the steel and coal sectors, but it has so far fallen behind on its targets.

    The Ministry of Industry and Information said on Friday in a draft policy document published on its website (www.miit.gov.cn) it would "normalize the stricter implementation and enforcement of mandatory standards" to tackle overcapacity in sectors such as steel, coal, cement, glassmaking and aluminum.

    It would implement a "differential credit" policy that would allow lenders to extend loans to help firms restructure while cutting off funding for poorly performing enterprises targeted for closure.

    Firms that fail to comply with new energy efficiency targets would be given six months to rectify and would be closed if they fail to make progress. Those that continue to exceed air and water pollution standards would be fined on a daily basis and in serious cases ordered to shut.

    It said authorities would cut off power and water supplies, and even demolish the equipment of firms that fail to meet environmental and safety standards. Facilities could also be sealed off to prevent them from going back into operation.

    The ministry also repeated a previous pledge to implement differential and punitive power pricing policies to force firms to toe the line.

    Beijing is concerned that some local governments have not been acting with enough urgency when it comes to dealing with overcapacity problems. On Thursday, the state planning agency singled out regions such as Inner Mongolia, Fujian and Guangxi for failing to make progress.

    China plans to close 45 million tonnes of annual crude steel capacity this year, and 250 million tonnes of coal production, but only a third of the closures were completed by the end of July, the National Development and Reform Commission said.

    Attached Files
    Back to Top

    China moves to spur slow coal overcapacity cut

    China moves to spur slow coal overcapacity cut
     
    China's top economic planner ordered local governments to speed up measures to cut excess coal production capacity as progress was slow.

    "Local governments should strive to fulfill their targets by the end of November, while central and provincial state-owned coal producers should complete in the early part of that month," Lian Weiliang, deputy head of the National Development and Reform Commission, said when addressing an internal meeting.

    Lian's remarks followed data that showed that by the first seven months China had only achieved 38 percent of its coal-production reduction goal. Around 250 million tonnes of capacity should be reduced this year.

    "Currently, progress clearly lags behind our official schedule," he said.

    Lian mentioned under-performing regions during the meeting. There has been no practical progress in Inner Mongolia, Fujian, Guangxi, Ningxia and Xinjiang, while Jiangxi, Sichuan and Yunnan have finished less than 10 percent, he said.

    Authorities must strengthen enforcement, Lian said, adding that punitive measures including forced shutdowns can be taken on factories that dawdle.

    China is the world's largest producer and consumer of steel and coal. The two industries have long been plagued by overcapacity and have felt the pinch even more in the past two years as the economy cooled and demand has fallen.

    The government has made reducing excess capacity a top priority, with plans to cut steel and coal capacity by about 10 percent -- as much as 150 million tonnes of steel and half a billion tonnes of coal -- in the next few years.

    http://www.chinamining.org/News/2016-08-12/1470968747d77041.html
    Back to Top

    Yitai Coal expects a 150pct surge in H1 net profit


    Inner Mongolia Yitai Coal Co., Ltd, the listed arm of Yitai Group, expected its net profit to surge 150% on year in the first half of the year, the company announced in its latest forecast report.

    The company attributed the favorable results mainly to spiking coal prices as the central government had been enforcing the supply-side structural reform during the past six months.

    Meanwhile, the low profit registered last year also gave it more growth room over January-June this year. In the first half of 2015, the company's net profit was 176 million yuan, a slump of 88.3% from the same period of 2014.

    Yitai Coal produced 17.18 million tonnes of coal in the first half of the year, up 1.1% on year, data showed.

    Its coal sales increased 12% from a year ago to 27.83 million tonnes during the same period, with sales in the second quarter rising 30.5% from the previous quarter.

    In the first quarter, the company realized gross profit of 650 million yuan ($97.92 million) in coal sales, dropping 20% on year.

    The gross profit in the second quarter reached 1.21 billion yuan, soaring 86.2% on quarter and up 3% on year, mainly attributed to a quarter-on-quarter increase of 990 million yuan in coal sales revenue during the period.

    http://old.en.sxcoal.com/0/151253/DataShow.html
    Back to Top

    Glencore progresses low-emission coal project in Queensland


    The government of Australia has granted A$8.7-million to Carbon Transport andStorage Company (CTSCo), a wholly-owned subsidiary of triple-listed Glencore for its carbon capture and storage project in Queensland’s Suratbasin.

    This funding, provided by the Department of Industry,Innovation and Science, will enable CTSCo to conduct a front-end engineering and design study, the next step in moving the project toward a final investment decision to undertake carbon dioxide (CO2) storage at depths greater than a kilometre.

    “This is an important development for the project and demonstrates the continuing contribution by Glencore and the coal industry to the research and development of low-emission technology solutions for fossil fuels that can be scaled up safely and commercially around the world,” saidGlencore global coal business group executive and WorldCoal Association chairperson Mick Buffier on Friday.

    He added that the project highlighted the important roleAustralia was playing in developing solutions that could significantly reduce emissions from fossil fuels.

    The technology can capture and store CO2 from coal- andgas-fired power stations, as well as a wide range of otherindustrial processes, such as steelmaking and chemical processes. It also plays a vital role in achieving ambitious climate change goals.

    The CTSCo project is located within a single greenhouse-gastenement, granted by the Queensland government in 2012, to be deployed on Glencore-owned land.

    The latest federal government funding builds on significantfinancial contributions to the project made by the coalindustry, the Queensland state government and Glencore.

    The project will be subject to a range of local, state and federal government regulations including environmental, social and technical aspect assessments and approval processes. These will all need to be successfully completed prior to the demonstration project starting in 2019.

    Meanwhile, carbon capture and storage (CCS) projects in North Australia was further bolstered by the Minister for Resources and Northern Australia Senator Matthew Canavan who granted more than A$23-million for the sector.

    The investment will help develop CCS technologies that can potentially reduce emissions by around 90% from fossil fuel electricity generation.

    CCS is already operating commercially with SaskPower’s Boundary Dam project, in Canada, the world’s first coal-firedpower plant with CCS. It’s achieving an emissions reduction of one-million tonnes of CO2 a year.

    The Australian coal industry is a major investor in the research and development of new coal emission reduction technologies.

    Through the Acalet Coal 21 Fund, the industry has made substantial investments in CCS projects and supports the research, development and demonstration of cleaner coaltechnologies. The Coal21 Fund is a joint financier of the CTSCo project and has already invested more than A$9-million in the project.

    Coal accounts for 41% of the world’s electricity generation and 70% of Australia’s grid electricity and is essential in the manufacture of modern infrastructure.

    http://www.miningweekly.com/article/glencore-progresses-low-emission-coal-project-in-queensland-2016-08-12
    Back to Top

    Aurizon profit down, 2017 outlook weaker than market tipped


    Aurizon Holdings reported a 16-percent drop in annual underlying profit on a decrease in transported coal and freight and said on Monday it expected operating earnings to grow in 2017 but by less than analysts had been forecasting.

    It also flagged it had stopped a share buyback to shore up funds for growth opportunities, which include a bid for Glencore Plc's GRail coal haulage business potentially worth $1 billion.

    "Our first impression is that the result, outlook commentary and the stopping of the buyback is likely to disappoint market expectations and as a result we expect the shares to be weak," RBC analyst Paul Johnston said in a note.

    Aurizon's shares opened down 6.6 percent following the result.

    Profit before one-offs fell to A$510 million ($390 million)for the year to June 2016 from A$604 million a year earlier, which was slightly better than analyst forecasts around A$498 million.

    It paid a full-year dividend of 24.6 cents, up 3 percent on a year ago.

    Aurizon Chief Executive Lance Hockridge said that while conditions were tough, there were signs that the market had bottomed for its coal customers, with only 10 percent of them now operating at or below breakeven, down from 26 percent six months ago.

    "In coal, we're seeing evidence of some stabilisation in the market, both with respect to the actual numbers, the position of our customers and to the sentiment in that space," he told reporters on a conference call.

    Aurizon has been scrambling to cut costs as tonnages and revenue have been hit by a slump in the coal sector and said it is on track to achieve savings of A$380 million over the three years to June 2018.

    Hockridge said snaring GRail would help Aurizon build on its 25 percent market share in coal transport in New South Wales against Asciano's Pacific National.

    "Yes we're certainly interested, however we're not desperate," he said.

    Aurizon needs a new source of growth after writing off its West Pilbara Iron Ore rail and port project, shelved last December due to a market glut. The write-off, booked in February, dragged annual net profit down 88 percent to A$72 million.

    The company expects underlying earnings before interest and tax to rise to between A$900 million and A$950 million in the year to June 2017 from A$871 million in 2016, based on coal volumes of 200-212 million tonnes.

    That is well below analysts' forecasts around A$970 million for 2017, according to Thomson Reuters I/B/E/S. ($1 = 1.3080 Australian dollars) (Reporting by Sonali Paul; Editing by Alan Crosby and Joseph Radford)

    http://www.reuters.com/article/aurizon-results-idUSL3N1AV0V2
    Back to Top

    $60 iron ore price see Australia, Brazil lose market share


    The import price of 62% Fe content ore at the port of Tianjin jumped back above $60 per dry metric tonne level on Friday according to data supplied by The Steel Index.

    Against most predictions, year to date the price of the steelmaking raw material is up 44% and has surged 63% since hitting near-decade lows in December.

    Trade data released earlier this week showed China, which consumes more than 70% of the world's seaborne iron ore trade, imported 88.4 million tonnes in July, the highest since December and up nearly 3% from a year ago. Shipments for the first severn months are now up 8.1% from 2015's record setting pace and on track to breach 1 billion tonnes for the first time.

    The rebound in prices and Chinese demand for cargoes have encouraged miners to enter or re-enter the market and new research from the Singapore Exchange shows non-traditional players are increasing their share of the seaborne market.
    Non-traditional supply could become stickier if hedging strategies at today's higher price are also adopted

    The global trade of roughly 1.3 billion tonnes is dominated by Australian and Brazilian and low cost producers including Rio de Janeiro based Vale and Pilbara giants Rio Tinto and BHP Billiton have been crowding out not only domestic Chinese miners, but also other exporting nations including number three South Africa where iron ore output is down by more than a fifth in 2016.

    Adrian Lunt, head of commodities research at SGX, says the second quarter "marked the first time in years that Australia and Brazil have seen a collective decline in seaborne iron ore market share."

    Of the 10.7 million tonnes of Chinese iron ore import growth in Q2 relative to the firs three months of the year Australian supply rose by around 7.3 million tonnes, Brazilian supply declined by 5.3 million tonnes while supply from other regions rose roughly 8.8 million tonnes.

    According to the note, regions ramping up iron ore exports in recent months have included India (first half exports were more than three times higher than the whole of last year), Iran, Peru, Mongolia, Russia, Indonesia and Malaysia.

    Lunt adds that some non-traditional supply "could become stickier if hedging strategies at today's higher price are also adopted."

    http://www.mining.com/60-iron-ore-price-see-australia-brazil-lose-market-share/
    Back to Top

    Baosteel lifts September steel price by 10 yuan/t


    Baoshan Iron and Steel Co., Ltd. (Baosteel), China’s largest listed steel maker, would lift prices of its major steel products -- hot- and cold-rolled sheet, thick plates and HDG -- by 100 yuan/t on month in the coming September, according to a notice released by the company on August 11.

    The adjustment indicated that China's steel market is recovering amid the government's capacity-cut policy.

    In August, many steel mills in eastern China and central China's Henan province arranged maintenance amid hot weather and strict environmental protection campaign.

    Industrial analysts said the market may go up in September amid increased demand in the traditional busy season.

    http://old.en.sxcoal.com/0/151257/DataShow.html
    Back to Top
    Commodity Intelligence LLP is Authorised and Regulated by the Financial Conduct Authority

    The material is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only.

    Officers and employees, including persons involved in the preparation or issuance of this material may from time to time have "long" or "short" positions in the securities of companies mentioned herein. No part of this material may be redistributed without the prior written consent of Commodity Intelligence LLP.

    Company Incorporated in England and Wales, Partnership number OC334951 Registered address: Highfield, Ockham Lane, Cobham KT11 1LW.

    Commodity Intelligence LLP is Authorised and Regulated by the Financial Conduct Authority.

    The material is based on information that we consider reliable, but we do not guarantee that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only.

    Officers and employees, including persons involved in the preparation or issuance of this material may from time to time have 'long' or 'short' positions in the securities of companies mentioned herein. No part of this material may be redistributed without the prior written consent of Commodity Intelligence LLP.

    © 2017 - Commodity Intelligence LLP